Music Group's Stock Falters on Its First Day of Trading

By SUZANNE KAPNER

Published: May 10, 2002

LONDON, May 9 — The shares of the HMV Group made a wobbly debut on the London stock market today, falling 7 percent in their first day of trading and undermining the possibility of a recovery in the market for initial public stock offerings.

Hopes had been high in the investment community that a strong showing by HMV would set the tone for other retailers looking to sell shares to the public later this year. Notably, Burberry, the fashion house with the signature splashy plaid, is expected to sell shares for the first time in June, when its owner, Great Universal Stores, plans to spin off the chain to the public.

Despite the general economic sluggishness, British consumers have continued to spend, and many retailers have been direct beneficiaries. HMV, which operates its namesake music stores as well as the Waterstone's bookstore chain, reported a 19 percent surge in third-quarter profit last month, with the music stores accounting for three-quarters of the company's sales.

But the problems facing the music industry — slowing sales and piracy — made some investors shy away from the offering. IFPI, or the International Federation of the Phonograhic Industry, said last month that recorded music sales fell 5 percent in 2001.

"Is it a growth business?" said John Hodson, a money manager at Taube Hodson Stonex Partners in London, which did not buy shares. "Probably not."

Nearly 280 million shares, or roughly 70 percent of the company, were priced at £1.92, at the low end of the range set by the underwriters, valuing HMV at £538 million ($785 million). HMV estimated its net proceeds at £350 million, which it said it would use to pay down debt and open new stores.

The shares closed down 13.5 pence, at £1.785.

The EMI Group, which formed HMV in 1998 with the Advent International Corporation, a private equity firm, reduced its stake to 14.5 percent from 43 percent, according to the prospectus. Advent now owns 13.7 percent, down from 41 percent. Those stakes could decline further if the underwriters take up their option to increase the number of shares on offer by 15 percent in coming weeks.

Alan Giles, the chief executive of HMV, also sold about £500,000 worth of stock, according to the prospectus. Directors and employees still own about 1.2 percent of the company.

The market for initial public offerings continues to be tepid in Europe.

So far this year, just 31 companies have gone public, raising a total of $7 billion, according to Thomson Financial, compared with 53 companies that raised $10 billion in the period last year.

ONDON, May 9 — The shares of the HMV Group made a wobbly debut on the London stock market today, falling 7 percent in their first day of trading and undermining the possibility of a recovery in the market for initial public stock offerings.

Hopes had been high in the investment community that a strong showing by HMV would set the tone for other retailers looking to sell shares to the public later this year. Notably, Burberry, the fashion house with the signature splashy plaid, is expected to sell shares for the first time in June, when its owner, Great Universal Stores, plans to spin off the chain to the public.

Despite the general economic sluggishness, British consumers have continued to spend, and many retailers have been direct beneficiaries. HMV, which operates its namesake music stores as well as the Waterstone's bookstore chain, reported a 19 percent surge in third-quarter profit last month, with the music stores accounting for three-quarters of the company's sales.

But the problems facing the music industry — slowing sales and piracy — made some investors shy away from the offering. IFPI, or the International Federation of the Phonograhic Industry, said last month that recorded music sales fell 5 percent in 2001.

"Is it a growth business?" said John Hodson, a money manager at Taube Hodson Stonex Partners in London, which did not buy shares. "Probably not."

Nearly 280 million shares, or roughly 70 percent of the company, were priced at £1.92, at the low end of the range set by the underwriters, valuing HMV at £538 million ($785 million). HMV estimated its net proceeds at £350 million, which it said it would use to pay down debt and open new stores.

The shares closed down 13.5 pence, at £1.785.

The EMI Group, which formed HMV in 1998 with the Advent International Corporation, a private equity firm, reduced its stake to 14.5 percent from 43 percent, according to the prospectus. Advent now owns 13.7 percent, down from 41 percent. Those stakes could decline further if the underwriters take up their option to increase the number of shares on offer by 15 percent in coming weeks.

Alan Giles, the chief executive of HMV, also sold about £500,000 worth of stock, according to the prospectus. Directors and employees still own about 1.2 percent of the company.

The market for initial public offerings continues to be tepid in Europe.

So far this year, just 31 companies have gone public, raising a total of $7 billion, according to Thomson Financial, compared with 53 companies that raised $10 billion in the period last year.